Election Year Uncertainty: How the 2024 Election is Impacting M&A Deals

As 2024 Election Day draws near, businesses and investors brace for the inevitable: uncertainty. While elections promise new leadership, they also bring shifts in policy, regulation, and economic outlooks that can significantly impact mergers and acquisitions (M&A). Understanding these influences is critical for businesses preparing to go to market, as they will directly affect how much a company is worth, how long it takes to sell, and how attractive it is to potential buyers.

How the Election Will Impact Business Valuations

Election years often create uncertainty in the market, which can directly affect on business valuations. Buyers tend to be cautious, waiting to see which political party will take control and how the new administration’s policies might impact the business environment. This caution can slow down deal-making or lead to buyers offering lower prices due to perceived future risks.

Tax Policy: A Major Factor in Selling Your Business

Tax policy is a key concern for anyone looking to sell their business, and elections often signal potential shifts in corporate and capital gains taxes. If you’re planning to sell, you’ll need to consider how these changes could affect the proceeds from your sale.

While many people are familiar with former President Donald Trump’s tax policies, the public is still gaining clarity on Vice President Kamala Harris’s stance. Harris recently released details of her tax plan should she be elected on November 5th. Her plans consist of raising tax revenue by $5 trillion over the next decade. She intends to do so by:

• Raising the corporate tax rate by up to 35 percent
• Proposing a capital gains tax at 28 percent for income over $1M
• Proposing to increase the net investment income tax to 5 percent (up from the current 3.8 percent) and expand it to cover non-passive income (this introduces a 5 percent capital gains tax for anyone selling a business and earning over $400,000)
• Raising top individual income tax rate to 39.6 percent
• Introducing a 4 percent premium tax on those earning over $100,000 to help fund Medicare for All
• Taxing unrealized capital gains above a $5M/$10M (individual/joint-filing) exemption at death
• Taxing carried interest as ordinary income

Significant tax increases like these decrease the net proceeds business sellers take home and lower the return on investment (ROI) for business buyers.

To learn more about the tax policy changes proposed by Harris and their impact on M&A, read this blog written by one of our most experienced M&A Advisors, Michael Mensch.

Financing and Buyer Demand During Election Volatility

Election years often create volatility in financial markets, making it harder for buyers to secure financing. Buyers who rely on loans or private equity to fund acquisitions usually face higher borrowing costs or more stringent lending conditions, which often delay or derail M&A deals.

However, election-related market fluctuations can also present opportunities. Well-capitalized buyers may see uncertain times as a chance to acquire businesses at more attractive prices. If you’re well-prepared and understand your business’s value, you could position your company as an appealing option even during a turbulent election season.

Timing Your Sale Around the Election

If you’re planning to sell your business in the near future, timing can be critical. While many business owners rush to close deals before an election, especially if they expect a change in tax policy or regulation that could negatively impact their sale price, others choose to wait until after the election, hoping for a more favorable political environment.

It’s important to balance the risks and rewards of both approaches for your unique situation. To speak confidentially with an experienced M&A Advisor, contact SBB Capital Partners today. With careful planning and the right approach, you can navigate the uncertainty and achieve the best outcome for your business sale.